China Digital Media Readings for February 20th

Pressures Drive Change at China’s Electronics Giant Foxconn – NYTimes.com – The announcement Saturday that Foxconn Technology — one of the world’s largest electronics manufacturers — will sharply raise salaries and reduce overtime at its Chinese factories signals that pressure from workers, international markets and concerns among Western consumers about working conditions is driving a fundamental shift that could accelerate an already rapidly changing Chinese economy.

Combining Social Media with E-Commerce, New Model of Monetization for Sina Weibo | 八八吧 :: 88 Bar – Sina Weibo (China’s leading microblog platform )and Ctrip (China’s leading online travel service provider) just announced their new collaboration through which you can find good hotel and flight deals from Ctrip by simply posting your travel requests on Sina Weibo (similar to Twits) then @Ctrip. I tried it by using my android phone to post shanghai+hotel@ctrip, within several seconds I got suggestion about hotels and links to webpages on Ctrip where I can read more and make reservation.

Walmart Ups Its Investment In Chinese E-Commerce Giant Yihaodian | TechCrunch – Walmart is announcing this evening that it has upped its investment in Yihaodian, a massive B2C e-commerce company based in China. Wal-mart, which originally funded the retail giant last year, has made another undisclosed investment in Yihaodian to bring Walmart’s total ownership stake to approximately 51 percent.

Will AdChina break the IPO drought? | China Accounting Blog | Paul Gillis – Another concern over VIEs is the risk that the interests of the VIE shareholder and the public shareholders may not be aligned, providing an economic incentive to the VIE shareholder to ignore the agreements and take the VIE. Interestingly, this is addressed in the financial statement footnotes – a first I think. The company says “the shareholders of the consolidated VIEs are also shareholders of the Company and therefore have no current interest in seeking to act contrary to the contractual arrangements.” That statement is absurd on its face. The key VIE is 100% owned by the founder and his wife, yet they only control 18% of AdChina before the IPO. While the 18% shareholding is significant and mitigates the risk of the shareholders taking the VIE, it is quite an overreach to conclude they have no current economic interest in doing so.

Sina Weibo Trends Manipulated By Fraudulent Accounts? | DigiCha – If correct this research is meaningful for Sina ($SINA), its investors and advertisers. Many claim that Weibo has much more use user engagement than Twitter, and that in fact it is the “Facebook+Twitter of China”. If a material percentage of the engagement turns out to be fraudulent, advertisers and investors may view the product in a different light. Real-name registration could help clarify these issues, as posting and retweeting by fraudulent/spam/zombie accounts should decline significantly, assuming real name registration is actually enforced.

[1202.0327] Artificial Inflation: The True Story of Trends in Sina Weibo – There has been a tremendous rise in the growth of online social networks all over the world in recent years. This has facilitated users to generate a large amount of real-time content at an incessant rate, all competing with each other to attract enough attention and become trends. While Western online social networks such as Twitter have been well studied, characteristics of the popular Chinese microblogging network Sina Weibo have not been. In this paper, we analyze in detail the temporal aspect of trends and trend-setters in Sina Weibo, constrasting it with earlier observations on Twitter. First, we look at the formation, persistence and decay of trends and examine the key topics that trend in Sina Weibo. One of our key findings is that retweets are much more common in Sina Weibo and contribute a lot to creating trends. When we look closer, we observe that a large percentage of trends in Sina Weibo are due to the continuous retweets of a small amount of fraudulent accounts. These fake accounts are set up to artificially inflate certain posts causing them to shoot up into Sina Weibo’s trending list, which are in turn displayed as the most popular topics to users.

Apple’s iPhone loses China market share | Reuters – Apple Inc’s share of China’s booming smartphone market slipped for a second straight quarter in October-December, as it lost ground to cheaper local brands and as some shoppers held off until after the iPhone 4S launch last month.

Review & Outlook: DreamWorks and Chinese Protectionism – WSJ.com – Not quite. This enterprise may well reward its investors. But the fact that a joint venture is the only way for a U.S. industry with a considerable competitive advantage to make further inroads into the Chinese market isn’t fair to the U.S. or healthy for China. The battle for market access in the Middle Kingdom is proving to be more challenging than Po’s quest to defeat Lord Shen in DreamWorks’s “Kung Fu Panda 2.”

Baidu Sees Strong Growth in Mobile Search: CEO – Bloomberg – China’s mobile Internet market is growing at an “astonishing pace,” Chief Executive Officer Robin Li said on a conference call today. Baidu will step up efforts in generating sales from mobile services, which make up a small percentage of revenue at present, he said.
Baidu’s stock rose in extended trading after the company yesterday reported net income climbed 77 percent, boosted by a surge in advertising sales. The Beijing-based company plans to generate more sales from social-media services and is seeking “long-term international opportunities,” Li said today.
About 15 percent of the search queries handled by Baidu now come from mobile users, Li said. The chief executive didn’t provide targeted revenue figures for mobile services.

Inside the Eastern Rise of Weibo, China’s Twitter | Culture | Vanity Fair- Weibo can be used for frivolous socializing and celebrity watching, but what has caught the world’s attention is the site’s powerful twin forces of subversion and surveillance. “Weibo is a magnifying glass for China’s social issues,” says Bill Bishop, a Beijing-based independent analyst who follows China’s Internet market. “It’s raising the pressure, adding some catalyst into an incredibly volatile mix.”Hung Huang, an outspoken writer and publisher with 3.9 million followers and the nickname “China’s Oprah,” puts it simply: “Freedom of speech was repressed for so long, Weibo is an outburst. People want to express themselves and before social media, they had no way to do it.”

Apple vs. Proview: The Assignment Agreement! | China Hearsay – Bottom line: looking at the Agreement doesn’t fundamentally change my mind on any of this. Proview still broke its promise and Apple still didn’t mandate the best closing procedures. The only surprising bit is the length of the agreement itself. Apple’s best shot here is still the Shenzhen appellate case that will begin on February 29.

Baidu Q4 Earnings, Revenue Beat Wall Street Estimate; Q1 Sales Outlook In Line BIDU – Investors.com- Though Baidu’s revenue nearly doubled, observers still fear an ad slowdown in China. Evidence of that surfaced on Monday, when China Internet portal Sohu.com (SOHU) gave Q1 profit guidance that was only about half what analysts had expected.Of some 5,300 group-buying advertisers active in China as of mid-2011, about 2,000 have shut down, wrote Tian X. Hou, an analyst with T.H. Capital, in a report Monday. Hou rates Baidu a hold.

“Ads are slowing for everyone, except Baidu — or a lot less for Baidu,” Bill Bishop, an independent analyst and blogger in China, said via email.

Baidu’s advertising in Q4 climbed 7% from Q3 and 82% from the year-earlier quarter.

In Q4 2010, Baidu’s advertising rose 94% year over year and 8.6% from the prior quarter.

Many observers worry that ad growth will continue to be flat throughout 2012, says ThinkEquity analyst Henry Guo.

The virtual currency scam from China that’s costing iOS developers real cash- CocoaChina, which hosts the largest iOS developer community in China and raised $14 million from Sequoia China and other investors, discovered a scam that’s giving players deep discounts on virtual currency packs in games like Capcom’s Smurfs’ Village.Basically, sellers go onto the eBay of China, or Taobao, to sell virtual currency at half-price or more. They create an Apple iTunes account attached to a fraudulent credit card number and then give the buyer the log-in and a tutorial on how to recharge their game with currency. Developers will see a discrepancy between their daily revenues with actual payments from Apple at the end of the month, once all of the fraudulent payments are skimmed out of their revenues.

These fake credit card numbers, sometimes called “black cards,” are often created for iTunes account outside of China. So developers won’t necessarily see a discrepancy in their Chinese revenues, but rather their European or North American revenues. The other key point is that this fraud works on legitimate iPhones, not just jailbroken ones.

Baidu to Set Up Brazil Office | Marbridge Consulting – The Chinese Ministry of Commerce has announced on its web site that internet company Baidu (Nasdaq: BIDU) is opening an office in Sao Paulo, Brazil, for the purpose of understanding the Brazilian and Latin American markets and to establish the company’s development strategy in the region

Apple’s Mountain Lion Makes the Mac More Like the iPad – NYTimes.com – • Lots more features for Chinese users, including a character-recognition system that updates the Mac’s Chinese dictionary as new words enter the popular lexicon. The Chinese equivalents of Google, YouTube, Twitter, and Facebook are now integrated with Share buttons and other spots, just as they are on the American version.

Alibaba’s Taobao at center of failed Yahoo deal: sources – Yahoo! Finance – several people involved in the proceedings said the rapid growth of Taobao caused Yahoo to have second thoughts about the valuation agreed in December when they signed a term sheet.
The situation described by several people involved in the discussions appeared to downplay some analysts’ views that the halt in talks was a negotiating tactic employed by one of the parties involved in the complex transaction.
“Taobao was definitely the main problem causing talks to break off,” said one of the people familiar with the matter…
Several sources noted that some factions within Yahoo were always somewhat hesitant about the prospects of the tax-efficient deal because of its inherent complexity and the uncertainty of satisfying the Internal Revenue Service.
The risk of political fall-out over the deal, which would effectively allow Yahoo to avoid paying billions of dollars in taxes after spinning off its stakes in Alibaba and Softbank, could also have contributed to the deal losing some of its appeal, according to the first source familiar with the matter.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Bill Bishop is an American living in Beijing. He is bilingual and has experience working in both US and China. In 1997 he co-founded CBS MarketWatch and stayed until the sale in 2004 to Dow Jones. He was never a journalist, and instead worked in several business roles over the years, the last as head of the MarketWatch consumer Internet business. More »

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